It is common knowledge that all investing comes with risks. Share markets, real estate, bonds, investment firms (to name a few) all offer the opportunity to grow your wealth, but investing needs to be approached with an awareness of the pitfalls that can damage your growth, and how to avoid them.
- Listening to the Noise
The noise of investment advice can be heard in newspapers, magazines, television, and radio. Financial commentators and the news will not help you make long term financial decisions. Tuning into them can create stress and worry about your investments. The news will report big downturns in the market, but will not spend as long reporting upturns in the market. Follow your written financial plan, listening to your trusted financial adviser who can provide tailor made solution for you and your goals.
- Buying high and selling low
If values are high, future returns are low. To see real long term growth, you need to invest when the market is low. This is the most emotionally difficult decision to make, but investing high can lead to significant short term losses.
- Not knowing how much risk you can endure
Investing comes with significant risks; There are no guaranteed successes. Some investments, such as a bank account, are safer than others and this needs to be considered. If the share market dropped $30 billion one day, would you be able to sleep that night? Are you generally prone to stress and worry? If you are, then high risk investments may not be suitable for you, and you should investigate diversifying more of your assets into defensive or income investments.
- Listening to your neighbour
Your neighbour, your brother, your boss. They claim to know the next ‘Apple’, or the next big investment that you must be on board with. Don’t listen to them; follow your written financial plan. No one knows what the markets are going to do in a year from now, and if their investment doesn’t come to fruition, it can create strained relationships.
- Not having a plan
Having a financial investment plan, written with the help of your adviser, is the key to good investing. Your financial plan should have clear goals and objectives. You need to decide how you want to diversify between growth and income investments. You need to decide how much you want to grow your wealth to, including having benchmark assessments for each of your assets to measure your portfolio’s success. Not having a plan can lend to stress and worry.